By Alexandra Geelan, lawyer
One of the first issues for you to get to the bottom of when negotiating a lease for your business is whether the lease is a commercial lease or a retail shop lease. To non-lawyers, this may seem like a minor or unimportant distinction and an unwelcome distraction from the substantive terms of the lease.
So why does it matter? The classification of your lease can have a significant impact on your rights and obligations under the lease, and how such rights can be exercised.
In every state in Australia, there is a Retail Shop Lease Act or equivalent piece of legislation which sets out certain obligations and procedures applicable to retail shop leases. In most states, the legislation cannot be contracted out of. This means that parties to a lease cannot agree not to be bound by the legislation and the relevant Act will continue to apply despite any clauses to the contrary in the lease.
If the parties to a lease do not know that they are entering into a retail shop lease, then they may inadvertently breach the legislation and open themselves up to liability for penalties or termination of the lease by the other party. Critically, the various retail lease laws contain strict terms and time-frames for disclosure requirements when entering into, renewing or assigning a retail lease. These requirements can be technical and difficult for inexperienced parties to navigate.
So what is a retail shop lease? Unfortunately - as with many things in the law - there is not a single, straight-forward answer to that question. The specific scope of the definition varies from state to state, and leases that are captured by the legislation of one state may not be captured by another. This means that it is important to look at, and seek advice on, the applicable legislation when negotiating your lease, particularly for businesses that have offices, outlets or premises in multiple states.
As a general guide, a retail shop lease is a lease of a premises that is either located in a shopping centre or used wholly or predominantly for the sale of goods or services to the public.
Most of the applicable legislation also contain a number of expressly excluded leases. For example, in New South Wales, the Retail Shop Leases Act 1994 (NSW) - per section 5 and Schedule 1A - excludes shops with a lettable area of 1,000 square metres or more, cinemas, bowling alleys or skating rinks and storage areas even where such businesses are located in a shopping centre. In Victoria, the Retail Leases Act 2003 does not apply to, among others, leases that are for a term of one year or less - per section 12 of the Act.
Commercial leases will be any business lease that is not a retail shop lease and are often either a warehouse, industrial site or an office in a commercial building.
It can be difficult for some businesses, particularly service businesses like medical practitioners or accountants, to determine whether their business is retail or non-retail. The deciding factor will often be the location of their business. For example, if a say a travel agent or dentist is operating out of a shop front in a shopping centre then it will usually be a retail lease. If the same business is operating out of an office in a commercial building, then it will be non-retail and the provisions of the relevant act will likely not apply.
It is important that tenants and landlord obtain advice to help them determine whether their premises are captured by the retail lease legislation, and if so, to help them comply with the terms of the legislation. This will help parties to safeguard their rights and interests in the premises and prevent disputes from occurring.
The final article in this series on commercial and retail leases next week will delve into the tips and tricks you will need to negotiate and finalise you own business’ leases in the future.
At Law Squared, we partner with passionate entrepreneurs and businesses who need our technical help and expertise in many areas. We’d love to have a chat with you, so feel free to drop us an email at email@example.com.
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